Participants in defined contribution plans have become less extreme in their investing, with fewer putting all their money in equities or going all-in with fixed income, and that's a good sign, said an annual report from Vanguard Group on participants' investing practices.
The primary reason for less extreme investing is the greater availability of target-date funds in DC plans and the growing use of them by participants, said Jean Young, senior research analyst with the Vanguard Center for Retirement Research, in an interview. “Rising adoption rates are improving asset allocations,” Ms. Young said.
Last year, 8% of participants invested all of their retirement money in equities, according to Vanguard data tracking 1,900 plans — covering more than 3.6 million participants — for which Vanguard was a record keeper. In 2009, it was 14%; and in 2005, it was 21%.
Among participants putting all of their money in fixed income, 5% used this approach last year vs. 11% in 2009 and 13% in 2005.
During the same period, the Vanguard report said the percentage of client plans offering target-date funds climbed to 88% last year vs. 75% in 2009 and 28% in 2005. Last year, 64% of participants had all or part of their retirement accounts invested in target-date funds vs. 34% in 2009 and 5% in 2005.
The report also said 41% of all DC plan contribution dollars were directed to target-date funds last year vs. 16% in 2009 and 2% in 2005.